(Adds context on global economy in third paragraph, background on China slowdown in fifth and seventh paragraphs, economist comments in eighth and ninth paragraphs)

BEIJING (MarketWatch) -- China's central bank said Wednesday it will raise its benchmark deposit and lending rates by 25 basis points, the third rate hike this year and its fifth rate increase in the latest round of tightening, as the government continues its fight against high inflation.

The move comes despite recent fears of an economic slowdown in China, and shows the top priority for authorities remains cooling inflation pressures.

How China balances controlling inflation with keeping up growth is of keen importance to the global economy. Now the world's second-largest economy, China has emerged as a key driver of global growth as the U.S. and Europe remain mired in tepid recoveries and Japan continues to suffer from the aftermath of the March earthquake and tsunami.

"The rate hike suggests the People's Bank of China is showing its determination to tighten monetary policy to rein in the high inflation rate," said HSBC economist Ma Xiaoping.

In recent weeks, some commentators in China have raised concerns that the central bank had already tightened policy too far, choking off credit to small and medium-sized companies.

China's consumer price index rose 5.5% in May from a year earlier, the fastest pace in nearly three years. Analysts widely expect inflation to top 6% in June before gradually declining in the second half.

The inflation data are due to be released on July 15, along with gross domestic product figures that will likely show the rate of economic growth slowed in the second quarter.

Mark Williams, an economist at research firm Capital Economics, said market fears of a slowdown will likely be flamed by the rate hike, although he disagrees that China is on the verge of a hard landing.

"With inflation over 6% in June, the focus on inflation is understandable," he said.

The PBOC said in a statement it will raise the one-year yuan lending rate to 6.56% from 6.31%, and the one-year yuan deposit rate to 3.50% from 3.25%, effective Thursday.

The move comes after the PBOC announced increases in its benchmark lending and deposit rates on Apr. 5 and Feb. 8, following two such hikes in 2010. The PBOC also raised banks' required reserve ratio six times in 2010 and six times so far this year.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.